WA business hit by gas attack

One of Western Australia’s biggest companies,
Wesfarmers
, is paying tens of millions of dollars more ­under its renegotiated gas contract, as businesses in the energy-rich state fork out some of the highest prices in the country to keep the lights on.

The revelation comes as state-owned electricity generator Verve ­Energy tries to renegotiate the favourable long-term gas contracts that it has with the state’s dominant producers under the North-West Shelf ­venture.

It is understood Wesfarmers paid close to $7.80 a gigajoule on the massive 60-petajoule, five-year-plus contract it signed with
Santos
in April, amounting to about $90 million in annual costs to feed its chemical plants. Its previous contract price was believed to be $4.50 a gigajoule.

By comparison, companies in Melbourne can lock in three-year-plus contracts at about $3.50 a gigajoule.

Santos controls about 15 per cent of WA’s gas production and is in a particularly powerful position as it has the majority of developed, uncommitted gas supplies in the state.

Wesfarmers declined to comment.

Santos said it was committed to supplying the WA market but would not comment on the deal.

Oil and gas analyst Di Brockman from CLSA said that until new gas fields such as Reindeer, Macedon and Gorgon were brought on stream from late next year, prices would stay high in WA.

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“Price pressures will remain because developed, uncontracted gas volumes are fairly limited ahead of the introduction of new fields," she said.

Some industry sources said it was wrong to compare WA with the eastern states, arguing that the nature of the western market was lumpy, project driven and still marked by only five major buyers compared with at least 70 on the east coast and multiple supply pipelines.

“We have to be comparing apples with apples, not apples with fruitcakes," the source said. The gas projects in WA are also ­located in remote areas, adding to the costs business and consumers ultimately pay.

WA businesses coming off contracts are now routinely paying ­between $8 and $9 a gigajoule, although some are understood to be paying double-digit prices.

With a 70 per cent hold on the market, the Woodside Energy-led North-West Shelf partners are among those producers accused of having found more attractive marketplaces offshore, leaving local buyers distressed.

The competition regulator this month issued a draft ruling allowing the monopolistic pricing power of the partners to continue.

Australian Competition and Consumer Commission chairman Graeme Samuel was not “satisfied that the WA market was sufficiently mature or liquid to make separate marketing commercially viable for the North-West Shelf partners".

An industry source said that a ­focus solely on gas prices by local gas users and their impact on business was “mischievous".

“Recent price rises are market reflective and price is just one business input and just one of a number of terms and conditions that makes up a gas contract," the source said.

Verve, which supplies about two-thirds of the state’s electricity from coal and gas plants, is understood to have bid to replace almost half its gas needs with fuel from the giant Gorgon project from 2015.

The negotiations could have a crucial bearing on WA’s electricity prices, which have risen sharply over the past two years as decades-old subsidies have been phased out.